- HEADLINES: Early weakness uncovers new buying; Gulf activity nears normal; Midwest forecast trends wetter.
- Early weakness found new buying in Chicago, despite a relative weakening of global energy markets and a lack of new export sales announced by FAS this morning. We have in recent days has highlighted the recent surge in end user margins, profitability spreading from biofuel producers, crush plants and livestock operations. The market does not need to break to clear stocks and in fact end users can absorb a lasting post-harvest recovery easily. Price action since late last week continues to validate that secondary lows were potentially scored just after the release of the USDA’s October WASDE.
- Gulf loading capacity is very close to normal. Export inspections through the week ending Oct 14 featured 38 million bu of corn, vs. 33 million the previous week, 84 million bu of soybeans, vs. 64 million the previous week, while wheat shipments were a disappointing 5 million bu, vs. 16 million the prior week. Priority will be given to soybeans over the next 60 days, and while the pace must stay elevated to offset early September’s Gulf closure, soybean’s southern demand pull will be robust into late year. Similar soy inspections are anticipated next week, and China will be active in extended forward coverage on even modest breaks.
- Corn’s Gulf demand pull stays mediocre into winter but given US export commitments sit at the second highest level on record as of early Oct, weekly corn export inspections of 50-80 million bu will become common January onward.
- Paris milling futures are down slightly on speculative profit taking but it is equally difficult to find fresh bearish wheat input. Most importantly, interior cash wheat and flour price in Russia are up again this week in both Rubles and US$. Interior flour prices are rapidly rising to all-time record highs posted in late 2020, and our bet is that new record Russian flour prices are scored in the Dec-Jan period. It is imperative that European wheat prices follow the Black Sea higher in order to slow export demand, and ultimately this bodes favourably for the US’s share of world trade in early 2022.
- EU and Ukrainian corn harvests remain historically slow. The corn harvest in France is just 15% complete vs. 62% a year ago. The EU corn market’s goal in the very near term is encourage some measure of Ukrainian imports, which only occurs at higher prices. EU corn yields will be excellent, but the feed balance sheet stays incredibly tight until late November. Additionally, Ukrainian corn fob basis has rallied to $1.65-1.70 per bu over Chicago futures, vs. $1.45-1.50 in late September. Our message is that the cost of world corn trade execution will be costly, and US Gulf corn is viewed as increasingly cheap in the global feedgrain marketplace. Brazilian interior corn is again testing $7.00/bu.
- The midday GFS weather forecast is much wetter in the western and Central Midwest beginning mid/late next week and continues to trend drier in Argentina. Favourably dry and mild conditions allow the Central US harvest to roll along smoothly into the weekend. Thereafter, a series of frontal systems trigger an active pattern of rainfall across the far eastern Plains, Midwest and Delta region into Oct 30. Cumulative totals in the 6-10 day period across eastern IA, MO, IL, IN and MI are estimated in a range of 1.5-3.0”.
- The S American forecast features daily showers in Central and Northern Brazil, a developing dry trend in far Southern Brazil and a noticeable lack of precipitation in all of Argentina over the next two weeks.
- After a rather emotional period of determining Northern Hemisphere crop sizes, market focus has returned to demand, which will be sizeable, and tight global/exporter corn and wheat stocks. The worst of supply fears have been eased following NASS October US yield data, but there is still no tolerance for additional supply dislocation in any hemisphere in calendar year 2022.